Law Of Unintended Consequences

From the White House Blog in an entry written by Norm Eisen, special counsel to the president for ethics and government reform in “the spirit of transparancy”:

… [T]he President’s March 20, 2009 Memorandum on Ensuring Responsible Spending of Recovery Act Funds. Section 3 of the Memorandum required all oral communications between federally registered lobbyists and government officials concerning Recovery Act policy to be disclosed on the Internet; barred registered lobbyists from having oral communications with government officials about specific Recovery Act projects or applications and instead required those communications to be in writing; and also required those written communications to be posted on the Internet.

However, a couple of changes have been made, among them:

First, we will expand the restriction on oral communications to cover all persons, not just federally registered lobbyists. For the first time, we will reach contacts not only by registered lobbyists but also by unregistered ones, as well as anyone else exerting influence on the process. We concluded this was necessaryunder the unique circumstances of the stimulus program.

So thinking this through, could “anyone” include a TV or print reporter asking an oral question to a government official concerning Recovery Ac Policy? Or a particular Recovery Act project that might impact their viewership or readership? Is it possible the information provided, if government officials are subjected to such oral scrutiny, might end up “exerting influence on the process”?

How about a concerned citizen who happens to be a blogger?

Doesn’t this give government officials the cover to duck such oral inquiries? How does that enhance transparency?

And ultimately, doesn’t this smack of a wee bit of a conflict with the 1st Amendment (free speech, free press, the right to petition government)?

And if “the unique circumstances of the stimulus program” are enough to limit 1st Amendment rights, per this paragon of “ethics and government reform, what other “unique circumstances” might be cited in the future to do the same sort of thing, given the precedent this sets?

“Lobbyists and organizations that lobby complained that the White House’s restrictions on lobbying on stimulus fund projects were discriminatory and unfair because the same restrictions didn’t apply to people like corporate executives or officials. So these memorandumly noted changes address that fairness issue by expanding the ban on orally petitioning the government or expressing one’s views through speech. In the interests of transparency the First Amendment must be sacrificed.

“The restrictions are also ambiguous enough that a lobbyist or other petitioner won’t be sure how to fully comply. So if someone runs afoul of White House officials, a phone call to a news outlet or a friendly prosecutor can punish the offender. Ambiguous rules plus capricious application equals negative rule of law.”

The only transparency in this process is the fact that the White House is telling you the rule. But the rule then precludes oral questioning which might make the process even more transparent. If even the remote possibility exists that such communication might “exert influence on the process” then it is prohibited.

The White House’s apparent intent is to run a transparent process. The result is overreaching by the executive branch with poorly thought through restrictions on speech that are seemingly unconstitutional. The problem is they obviously don’t feel that to be the case. Or if they do, they think they should have the right to restrict certain forms of communication between government and anyone they decide if “unique circumstances” are existent (guess who get’s to determine whether they are or not?).

Frankly that should bother you.

However, fear not – I’m sure those that continually cited the Bush administration for alleged expansion of executive power will be among the first to address this obvious abuse of Constitutional power and call for an immediate revocation of the rule.

Amidst all the “happy talk” about signs that the economy is “turning around” we see more troubling signs that it is, in fact, being badly mishandled:

The US Treasury is facing an ordeal by fire this week as it tries to sell $100bn (£62bn) of bonds to a deeply sceptical market amid growing fears of a sovereign bond crisis in the Anglo-Saxon world.

[…]

The interest yield on 10-year US Treasuries – the benchmark price of long-term credit for the global system – jumped 33 basis points last week to 3.45pc week on contagion effects after Standard & Poor’s issued a warning on Britain’s “AAA” credit rating.

The yield has risen over 90 basis points since March when the US Federal Reserve first announced its controversial plan to buy Treasury bonds directly, a move designed to force down the borrowing costs and help stabilise the housing market.

The yield-spike may be nearing the point where it threatens to short-circuit economic recovery. While lower spreads on mortgage rates have kept a lid on home loan costs so far, mortgage rates have nevertheless crept back up to 5pc.

The housing market hasn’t yet bottomed out and Britain isn’t the only country whose credit rating Standard & Poors is reviewing. If we can’t sell debt instruments there are only a couple avenues left to us aren’t there? And, as noted, both would certainly “short-circuit” any economic recovery.

If the government does bail out the muni bond market, how should it go about things? The initial assumption is that they’ll only guarantee existing debt. Otherwise, it would be like handing the keys to the treasury to every mayor, county board, and state legislature, and telling them to go to town.

But once the treasury has bailed out a single state, there will be a strongly implied guarantee on all such debt. So you don’t give them the keys to the vaults, but you do leave a window open, point out where the money’s kept, and casually mention that you’ve given the armed guards the week off.

Of course the right answer is not to bail out either. Failure is a great teacher. And then there’s the moral hazzard angle.

But in this day and age, that’s approach is almost unthinkable apparently. Government, as we’re being told, is the answer to everything.

My fear, based on what the federal government has done to this point, is they’ll “hand the keys to the treasury” on both the muni bond market and the states (with bailouts). They have no business doing anything in either place, but we’ve already seen that the arbitrary assessment that some entity is too big to fail apparently takes priority over economic law.

Once a single state is bailed out, there is nothing to stop other states from making a similar claim on the treasury.

Should such a thing happen in either case (or both), Federalism, which is on its last legs anyway, will be officially dead.

Because the fact you’ve been a responsible adult and paid your credit cards on time and have immaculate credit simply doesn’t matter once Congress gets involved in saving yet another victim class from itself:

Credit cards have long been a very good deal for people who pay their bills on time and in full. Even as card companies imposed punitive fees and penalties on those late with their payments, the best customers racked up cash-back rewards, frequent-flier miles and other perks in recent years.

Now Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit.

Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.

“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems.”

You begin to wonder, “why bother”? You pay your mortgage on time and end up subsidizing those who don’t. You manage your household finances well and end up paying to bail out institutions which didn’t. You stay on top of your credit cards and pay them off regularly and now you’ll be subsidizing those who don’t.

Responsible conduct is punished and irresponsible conduct is subsidized.

And, of course, when you create a new victim class, it is important to vilify the evil oppressor:

Austan Goolsbee, an economic adviser to President Obama, said that while the credit card industry had the right to make a reasonable profit as long as its contracts were in plain language and rule-breakers were held accountable, its current practices were akin to “a series of carjackings.”

“The card industry is giving the argument that if you didn’t want to be carjacked, why weren’t you locking your doors or taking a different road?” Mr. Goolsbee said.

Although Herbert Hoover is rarely cited when one thinks of “immortal words”, these few paragraphs from Hoover (from James T. Flynn’s “The Roosevelt Myth”, HT: the Heritage Foundation) should certainly give you pause:

In every single case before the rise of totalitarian governments there had been a period dominated by economic planners. Each of these nations had an era under starry-eyed men who believed that they could plan and force the economic life of the people. They believed that was the way to correct abuse or to meet emergencies in systems of free enterprise. They exalted the state as the solver of all economic problems.

These men thought they were liberals. But they also thought they could have economic dictatorship by bureaucracy and at the same time preserve free speech, orderly justice, and free government.

These men are not Communists or Fascists. But they mixed these ideas into free systems. It is true that Communists and Fascists were round about. They formed popular fronts and gave the applause. These men shifted the relation of government to free enterprise from that of umpire to controller.

Consider the “car czar”. Look at the Chrysler board. Imagine government run health care. Cap-and-trade. Etc.

After that bit of reality from today, read Hoover’s further observations:

Directly or indirectly they politically controlled credit, prices, production or industry, farmer and laborer. They devalued, pump-primed and deflated. They controlled private business by government competition, by regulation and by taxes. They met every failure with demands for more and more power and control … When it was too late they discovered that every time they stretched the arm of government into private enterprise, except to correct abuse, then somehow, somewhere, men’s minds became confused. At once men became fearful and hesitant. Initiative slackened, industry slowed down production.

Look around you and tell me what you see. The future? It’s to be found in Hoover’s words from 1940.

Many states have decided the financial relief they need to make up for their profligate spending sprees of the recent past and their present budget short-falls is to be found in raising the taxes of their “rich” citizens.

With states facing nearly $100 billion in combined budget deficits this year, we’re seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich. Lawmakers in California, Connecticut, Delaware, Illinois, Minnesota, New Jersey, New York and Oregon want to raise income tax rates on the top 1% or 2% or 5% of their citizens. New Illinois Gov. Patrick Quinn wants a 50% increase in the income tax rate on the wealthy because this is the “fair” way to close his state’s gaping deficit.

But there’s a problem with the plan. As the WSJ points out, these citizens and their money are mobile and while they may prefer to live in the states listed above, they simply don’t have too. And with the plan to significantly increase taxation for them, now there’s a good reason not too:

The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.

Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.

Notice that the exodus from the high-tax states to low-tax states with more opportunity has been significant since 1998. But now with the plan to increase taxes again on the “richer”, high-tax states are providing even more of a financial incentive for those in higher income brackets to leave them and move to low or no-income tax states. While such a relocation might have had marginally positive financial results for those leaving in the past, high-tax states are about to make relocation for financial reasons a no-brainer. And states like California and New York can hardly afford to run off the class of tax payer that presently pays the largest percentage of state taxes. But, with alternatives available, that’s precisely what they’re getting ready to do.

And when that happens, who ends up making up for the state’s shortfall?

More recently, Barry W. Poulson of the University of Colorado last year examined many factors that explain why some states grew richer than others from 1964 to 2004 and found “a significant negative impact of higher marginal tax rates on state economic growth.” In other words, soaking the rich doesn’t work. To the contrary, middle-class workers end up taking the hit.

Dictated by the 5 of 9 Chrysler board members (appointed by the US and Canadian governments) and the UAW board member, Chrysler is pleased to present the 2010 Obamamobile:

Coming to a politically correct dealership near you soon!

Note the standard dual teleprompters. Since this model is run by hot air and not much else, all you have to do to boost power is read the prepared statements on the ‘prompter and zoom, you’re off to the races!

Bruce Bartlett gives you a different way of looking at the mess your political leaders, over a number of generations, have gotten us into and what it will cost, at a minimum, to fulfill the promises they’ve made over the decades.

To summarize, we see that taxpayers are on the hook for Social Security and Medicare by these amounts: Social Security, 1.3% of GDP; Medicare part A, 2.8% of GDP; Medicare part B, 2.8% of GDP; and Medicare part D, 1.2% of GDP. This adds up to 8.1% of GDP. Thus federal income taxes for every taxpayer would have to rise by roughly 81% to pay all of the benefits promised by these programs under current law over and above the payroll tax.

Since many taxpayers have just paid their income taxes for 2008 they may have their federal returns close at hand. They all should look up the total amount they paid and multiply that figure by 1.81 to find out what they should be paying right now to finance Social Security and Medicare.

To put it another way, the total unfunded indebtedness of Social Security and Medicare comes to $106.4 trillion. That is how much larger the nation’s capital stock would have to be today, all of it owned by the Social Security and Medicare trust funds, to generate enough income to pay all the benefits that have been promised over and above future payroll taxes. But the nation’s total private net worth is only $51.5 trillion, according to the Federal Reserve. In effect, we have promised the elderly benefits equal to more than twice the nation’s total wealth on top of the payroll tax.

We again have a new crop of political leaders making similar promises about a range of things, from energy to the environment to health care. Look at what they’ve done with the portion of health care they were given previously?

Someone – anyone – tell me how, given the performance of government to this point with Medicare and Medicaid, it is going to provide lower cost health care when it is obvious that it has been instrumental in doing just the opposite?

For some reason, I just can’t get past that negative and inconvenient truth enough to suspend disbelief and decide that once government is running the whole show, everything will fall in line and we’ll have world-class health care at a much lower price – all managed by government.

And one other point Bartlett makes – this mess was made by politicians and, as our laws are written, can only be fixed by politicians. But politicians rarely, if ever like to make decisions which will be unpopular and cause them to have to find new employment. No one likes to be the bad guy. So don’t expect much in the way of “fixing” this mess. You’re more likely to see the whole house of cards collapse because it is unsustainable and the administration in charge at the time blame the previous one (kind of like what you’re seeing now on just about everything else) than to see any political leader actually make the hard decisions necessary (and then win over the Congress) to actually take care of these looming problems.